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Sequestration: Gramm-Rudman’s Potent Weapon for Spending Restraint

As the battle over the 1990 budget drags on through the year,
many policymakers will solemnly state that the deficitcan only be
reduced if taxes are increased. News reports will dutifully note
that President Bush does not have the votesin the
Democratic-controlled Congress to pass his budget, further adding
to the conventional wisdom that taxes should be raised. Any signs
that the Bush budget’s economic projections will not be fulfilled
will be taken as further evidencethat more revenue is needed.
Combined with standard criticisms that the president’s proposed
budget relies on gimmicks and creative accounting, it would appear
that the White House is almost powerless in the fight against
higher taxes.

Overlooked in this analysis, however, is the role of the
Gramm-Rudman-Hollings Deficit Reduction Act. Most importantly,
sequestration — the law’s procedure for automatically
restraining spending growth if the projected deficit exceeds the
target by more than $10 billion — is a powerful tool for the
executive branch. Unless Congress can muster a two-thirds vote to
pass a tax increase over a presidential veto, George Bush can use a
sequester to reduce the deficit without higher taxes. Congress
could repeal or modify Gramm-Rudman, but such a step would also
require legislation that the president could veto. Since it is very
unlikely that Congress would be able to override either veto,
policymakers would have little choice but to accept the sequester
or enact a budget acceptable to the White House.

Few budget experts believe sequestration is the optimal outcome
of the year’s budget debate. However, as Federal Reserve Board
chairman Alan Greenspan stated in testimony to the Senate Budget
Committee, “it is certainly desirable, 1) to a tax increase, and 2)
to especially doing nothing.”1 Unlike budget agreements
that rely on one-timesavings and promises to behave more
responsibly in the future, sequestration imposes real reductions in
the growth rateof federal spending. Furthermore, the Bush
administration could improve its chances to avoid higher taxes next
year by choosing a sequester this year because sequestration would
significantly lower the spending baseline Congress will use when
preparing the 1991 budget.

Although many observers thought George Bush would be a weak
president, he has the power to control the outcome ofthe budget
debate. So long as the White House is prepared to accept a
sequester rather than renege on the commitment never to raise
taxes, the president’s opponents in Congress are almost powerless
to stop him. A sequester strategy would be attacked, but, as will
be explained, the benefits of a sequester, especially when compared
with the costs of higher taxes, far outweigh the imagined
liabilities.